Congress Should Not Interfere With SEC Modernization Agenda

Posted: Mar 01, 2018 12:01 AM
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Many think Congress needs to do a better job passing legislation, and for good reason. But sometimes the best thing for Congress to do is nothing. Such is the case regarding efforts of the Securities and Exchange Commission (SEC) to modernize rules for how millions of Americans receive mutual fund reports.

All mutual funds registered with the SEC are required to send semi-annual reports to shareholders. As part of an effort to modernize reporting regulations, pending SEC Rule 30e-3 would allow for mutual funds to satisfy their reporting requirements with the electronic delivery of their reports.

The benefits of moving to paperless reports are significant. To provide the 440 million shareholder reports sent each year requires the consumption of an estimated 1.87 million trees. Not only is this an extreme waste of natural resources and destructive for the environment, but the costs—as high as $2 billion over the next decade—are inevitably passed on to the close to 100 million Americans owning shares in mutual funds.

Therefore, a coalition of 26 of the nation’s top free market organizations recently asked Congress not to slip a so-called “rider” into the upcoming appropriations bill that would prevent the SEC from bringing its reporting rules into the 21st century.

Why would Congress even contemplate such an action? As usual, the answer is to follow the money. In this case, the consumer’s loss is the paper industry’s gain.

These common-sense reforms have already been held up for two-and-a-half years thanks to opposition from vested interests. It’s difficult enough to get government agencies to keep their rules up-to-date with modern technology without Congress standing in their way on behalf of industry rent-seekers.

Critics of the new rules argue that it’s unfair to allow mutual funds to default to paperless reports, even as those who wish to continue receiving paper reports could opt to do so. In truth, it is the opposite approach that is unreasonable. Requiring companies to adhere to outdated, legacy formats except where they obtain each individual customer’s express permission to innovate would halt modernization in its tracks. Doing so simply to protect the profits of a particular industry is blatant cronyism.

At a time when Americans increasingly look to online vendors and services to satisfy their needs, allowing for mutual funds to participate in the modern economy hardly seems like a revolution. Claims that shareholders are too inept to receive their reports online or opt in to paper delivery if that’s their preference are disingenuous and insulting.

Try as they might, opponents simply can’t articulate a good reason not to allow the SEC to finally move forward with its modernization rules.

The appropriations process is complicated enough already, as evidenced by the persistent inability of Congress to pass a budget or meet government funding deadlines. It only serves to confirm voter cynicism for lawmakers to complicate matters further by abusing the appropriations process to protect whichever industries happen to operate in their individual districts, especially when doing so comes at the expense of consumers.

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